November 2022 – The OM Blog by Heizer, Render, & Munson

OM in the News: Did the Pandemic Kill JIT?

Retailers struggle with an inventory glut and overstocked warehouses

Just-in-time supply chains took a lot of heat during the pandemic after empty shelves laid bare the pitfalls of ordering as little inventory as possible in the name of efficiency. But, with retailers now struggling with too much inventory, can the lean model, our topic in Chapter 16, be making a comeback?

Experts are mixed: While some believe that JIT has no place in the supply chains of the future, others say a modified version of the strategy will still be necessary to maintain resilience while keeping costs down. Here are the responses of three SCM experts as reported in Supply Chain Dive (Nov. 29, 2022):

CEO of LMA Consulting. JIT is not dead; however, the days of taking the concept literally and ordering inventory to arrive ‘JIT’ is dead. If ordering strategic inventory from China, you should account for likely demand and supply volatility and stockpile inventory appropriately. But most businesses took JIT literally, assuming the supply chain would continue to support their needs. They did not adjust their inventory profiles and were left empty handed during the pandemic. They are now assessing supply chain risk, reevaluating their supply chain footprint, dual sourcing key products and determining where to locate strategic capacity and inventory.

CEO of Assoc. for SCM. The pandemic blew a fuse, revealing flaws to JIT. JIT promotes efficiency and product quality, but sometimes at the expense of resilience, and therefore isn’t equipped to manage the turbulence of global events, like COVID-19, weather disasters and the Russia-Ukraine conflict. Now, around 64% of companies are pivoting from JIT to just-in-case to circumvent liability. This system depends on extra stock and buffers for high-demand products. A modified version of JIT can help where companies only stockpile certain vulnerable items to avoid fallout from potential disruptions. Consumers still have an expectation of high variety, rapid delivery and reasonable cost that defined JIT supply chains.

SCM Professor at Michigan State U. What we are seeing is the decision to reevaluate safety inventory levels. Safety inventories are a function of uncertainty of demand as well as uncertainty of supply. COVID-19 has exacerbated both forms of uncertainty, which results in companies holding more safety inventories to achieve the same target service levels. As we see supply chains normalize through 2023, we would expect companies to reduce their levels of safety inventory to correspond to the “new normal” levels of demand and supply uncertainty.

Classroom discussion questions:

Explain the difference between JIT and “just-in-case” inventory.
What was the impact of the pandemic on JIT?

Teaching Tip: Glossary of Supply Chain Terms

The Financial Times (Nov. 22, 2022) has just issued a report called How Technology Can Help Redraw the Supply Chain Map . In it, the newspaper provides this useful glossary of current SCM terms for your students to keep handy.

Internet of things (IoT) The IoT consists of sensors that make goods “smart”. These can both send information and communicate with each other. The IoT is used in the supply chain for tracking and monitoring. (See p. 451 in your Heizer/Render/Munson text).

Blockchain Blockchain is also known as distributed ledger technology. It allows for the digital recording of transactions and tracking assets in a business network. It introduces trust where this is scarce. The verifiability of transactions can help to reduce fraud. (See p. 451 and 591).

Artificial intelligence (AI) and data analytics These involve statistics at a huge scale processed at a blistering speed. They can help with warehousing and inventory, improving sourcing relationships and predicting demand AI and machine learning. (See p. 823-831).

Machine Learning (ML) is a facet of AI that applies an algorithm to data. It then taps into previous experience and then accomplishes tasks without human involvement. The algorithms can, for instance, make predictions, form personalized recommendations and recognize images in photos. Examples of ML with which you may be familiar include TikTok recommendations, photo portrait recognition and sentence completion.

Robots and automation This covers the physical side of distribution centers and includes optimizing storage, moving stock and picking and packing. It is increasingly sophisticated. (See p. 277, 292, 371, 490).

3D printing This involves the creation of three-dimensional objects by a machine that uses a computer model. It applies layers of substrate (plastics, liquids or powders) to create physical goods. It allows for the making and replication of extremely complex shapes that cannot be constructed by hand. (See p. 170).

OM in the News: New York Goes After Cryptocurrency Miners

Bitcoin mines need cheap and plentiful electricity

Bitcoin mining – the process by which powerful computers solve complex mathematical equations to validate transactions is a crucial part of the cryptocurrency economy. And while amateurs could once mine coins at home, the complexity of equations, and the energy needed to solve them, has soared with the growing popularity and value of Bitcoin. We have twice posted blogs regarding cryptocurrency mining and its need for massive computers. (See “Going Crazy with Bitcoin Mining” on Nov. 15, 2021 and “Cryptocurrency’s Damage to the Environment” on April 19, 2021.)

But climate advocates have long said that the value of crypto–mining operations were not worth the environmental costs. The process requires an immense amount of electricity – so much so that China banned the practice last year in an effort to meet its climate goals.

New York became the first state to enact a temporary ban on new cryptocurrency mining permits at fossil fuel plants, a move aimed at addressing the environmental concerns over the energy–intensive activity, reports the New York Times (Nov. 22, 2022). The move in NY comes months after some other states (Montana and Georgia) and Quebec, Canada had adopted more friendly policies toward the industry, offering tax incentives in hopes of luring crypto-mining operations after China cracked down. “This bill will create the pause we need in the current trend of purchasing old power plants in New York for corporate profits and allow us to properly evaluate the impact of this industry on our climate goals before it is too late,” says a NY State legislator.

But it also comes at a moment of intense turbulence, and a potential crossroads, for the cryptocurrency sector. Earlier this month, the crypto exchange known as FTX suffered a swift and public collapse that led to its declaration of bankruptcy. The fall of what had been a trusted player in the new market has led to broader questions about the future of cryptocurrency.

The Chamber of Digital Commerce, a crypto advocacy group, denounced the NY bill as unfairly targeting the cryptocurrency industry, saying: “To date, no other industry in the state has been sidelined like this for its energy usage. This is a dangerous precedent to set in determining who may or may not use power.”

Classroom discussion questions:

1. Chapter 8 in your Heizer/Render/Munson text discusses location decisions based on government incentives. Relate that political issue to crypto mining.

2. What is your position on NY’s ban?

OM in the News: Amazon’s Robotics Ambitions

In the Amazon warehouse outside of Boston, a yellow-plated, gooseneck-like mechanical arm stretched and plucked a plastic jar holding a powdered drink mix out of a yellow box. The new device rose up, spun around with a loud whirring sound and gently placed the jar a few feet away into a gray bin. It twisted again toward the yellow box and soon after grabbed a DVD case, a very different shape, before pivoting quickly again to drop the item into an adjacent bin.

These actions are executed rapidly and smoothly, just like the countless movements that workers undertake to pick and pack millions of online orders each day in warehouses across the world.

But the robotic device, known as Sparrow, is outfitted with suction cups and artificial intelligence software rather than the eyes and hands of humans. It is Amazon’s attempt to automate more of its warehousing operations by turning some of the most physically challenging and repetitive tasks over to robots, reports The Wall Street Journal (Nov. 20, 2022).

Warehouse workers pick items up, sort them and put them down millions of times a day. But Amazon is trying to get Sparrow to do something that robots have long struggled with—picking up a variety of objects as easily as humans can, as well as identifying them by characteristics such as color, shape and size.

Amazon has been criticized for the tough requirements it imposes on workers in the name of efficiency. Warehouse workers there risk of developing repetitive-stress injuries and musculoskeletal disorders (a topic in Chapter 10). Sparrow is meant to be the next step in that safety process. The robot “is going to help really transform our network in those repetitive motion challenges we have,” said Amazon’s VP.

If Sparrow can eventually on a large scale handle items as varied as vitamins, Apple watchbands and packaged board games, it could carry Amazon’s stalling logistics operations forward during a period of cost-cutting across the company. Sparrow can handle millions of items that represent about 65% of Amazon’s total inventory. The process of picking orders accounts for roughly half the labor costs at warehouses. “That really is the kind of Holy Grail and the last final frontier of automation,” said an industry expert.

Classroom discussion questions:

What other robotic advances has Amazon conducted in the past decade? (Hint: see the Chapter 12 Global Company Profile that features Amazon)
Will robots replace workers at Amazon centers? Why or why not?

Teaching Tip: Those End-of-Term Surveys

Although universities’ end-of-term evaluations are important, they are often too generic to guarantee detailed insights into our OM classes and our teaching. If we want to get specific feedback from students—about our assignments, MyLab, case studies, guest speakers, projects, readings—we must ask specific questions. And the best way to do that is by issuing our own surveys as well.

Harvard Business School’s Faculty Lounge (Nov. 15, 2022) has 3 suggestions to consider:

1. Ask specific questions to yield actionable feedback– including feedback on the materials you use, the approach you take, or the subjects you cover. Perhaps even ask what students would have done differently if they had been in your shoes and what topics they wished you had time to explore. You might also be wondering whether a particular guest speaker resonated with your students. And while you’re at it, list all the guest speakers in a survey question and request that students rate each one on a 1–5 scale, explaining their rating. You can ask similar questions about assignments, case studies, readings, and projects. Perhaps ask: “What are you most proud of achieving this term?”

2. Share the why—and be mindful of the when and how. You want students to understand that their feedback really means something to you—and that you’re thinking through what will lead to their most candid responses. To ensure that students will give your survey their full attention, let them know the “why”—that you’re including your own survey because their specific feedback is incredibly valuable and that you’d appreciate honesty, thoughtfulness, and thoroughness. If you’re worried about survey fatigue, keep your questionnaire short. Also, anonymous surveys build trust and inclusion. Online tools like Google Forms, Qualtrics, and Canvas offer anonymous survey options.

3. Learn to shrug off unproductive comments. Anonymous feedback can improve teaching—but also destroy educators’ confidence and innovation. If all your students think your course was wonderful, easy, and absolutely what they expected, it may be a sign that perhaps you’re not challenging students and pushing them beyond their comfort zones. Still, take some comments with a grain of salt, narrowing in on the feedback that is most productive and adjusting accordingly. If you end up surprised by some of your students’ responses, take opportunities to ask for feedback earlier in future terms.

The advantages of creating your own end-of-term survey are plentiful. But an important benefit is that it gives your students a voice.

OM in the News: Is the EV Supply Chain Ready?

“The car industry is staging a revolution,” writes The Wall Street Journal (Nov. 14, 2022)—a transition from the gas engines that have powered vehicles to a battery-propelled future. But a key part of the reinvention remains unfinished and filled with risk: the supply chains for the parts needed to assemble electric vehicles.

The guts of EVs— batteries, electric motors and the electronics that mesh them together—are nothing like the engine blocks, transmissions and drive shafts that move today’s cars. “This industry is going through a transformation like it hasn’t seen since World War II. The whole supply structure is going to change,” says an industry expert.

On the upside, EVs require vastly fewer parts: An EV motor has only about 20 moving parts, compared with 200 in an internal combustion engine. Yet the industry is young, and finding reliable sources for EV parts is daunting.

Some pinch points: The batteries and most of the EV motors rely on unusual metals that can be costly and hard to obtain. The vehicles’ electronics require new chips from a semiconductor industry still working through pandemic-era backlogs. (EVs require more than twice as many chips as internal-combustion vehicles— 1,300 versus 600). Even the aluminum trays that hold batteries beneath the floors of electric vehicles can be scarce. There are supply chains within supply chains.

One of the biggest potential problems is finding sufficient and affordable supplies of key raw materials, including lithium, nickel, manganese and cobalt. Much of the mining and processing of these metals is based in just a few countries. Two-thirds of cobalt is mined in the Congo, where workers face dangerous conditions. Australia mines about half the lithium, while nickel is centered in Indonesia. The refining of these materials for use in batteries is even more concentrated: China processes 70% of the world’s lithium and cobalt, and 99% of the manganese.

Some car makers are already predicting battery shortages. “Put very simply, all the world’s battery cell production combined represents well under 10% of what we will need in 10 years,” says the CEO of Rivian Automotive. He added that “90% to 95% of the battery supply chain does not exist.”

Finally, the majority of motors used in today’s EVs rely on permanent magnets which require costly rare-earth metals. The dominant supplier is again China, and producing the metals can cause pollution and environmental damage.

Classroom discussion questions:

What positive supply chain issues does the EV industry expect?
What supply chain constraints are expected and how will they be addressed?

OM in the News: Superfast Delivery Shifts into Low Gear

In Chapter 2, we describe how companies can achieve competitive advantage (see pages 36-39) through differentiation, cost, or response (speed). For years, Amazon.com set the pace for competition on speed with its investment in next-day and same-day delivery.

Companies like UPS are turning away from more expensive fast delivery as a way of trimming costs.

But retailers this holiday season, reports The Wall Street Journal (Nov. 10, 2022), are focusing on delivering packages to customers on specific dates, rather than competing on speed of delivery. The shift marks an easing in a race for delivery speed in e-commerce in recent years that has pushed goods to shoppers’ homes at an ever-faster pace while narrowing retailers’ profit margins on sales.

With inflation-conscious consumers now dialing back their online shopping, many retailers are focused on restraining the high costs of fulfillment and “last-mile delivery”.

Amazon now gives its Prime members the option to pick a specific delivery date. Other retailers and logistics operators are now following suit. The idea is to offer “an anticipated delivery time” … whether that is 2 days or that is 3 days.

Saks shows shoppers what day they can expect any given item to arrive based on factors such as their ZIP Code. The feature refines the retailer’s previous 3- to 5-day shipping window. The choice makes clear to consumers that faster delivery carries a higher cost.

Chinese giant online apparel retailer Shein, known for its low-price and trendy clothing, says that rapid sales growth and superfast delivery don’t have to go hand-in-hand, even in fast fashion. Online shoppers are now more willing to wait for certain deliveries, having gotten used to pandemic supply-chain disruptions. Shein focuses on the front end of its supply chain, which includes manufacturing and shipping out of Guangzhou, China. It has significant business in the U.S. even though its website says it takes 10 to 15 days for American customers to get orders. .

Shein plans to expand its North American business by opening three distribution centers in the U.S., but even those will only speed up delivery by 3 or 4 days. The most important factor for consumers has become the visibility of it all and being able to know when to expect a delivery, as opposed to the assurance that it’ll be a superfast delivery. “Sometimes they want it really, really fast, or they want it really, really scheduled,” said a UPS exec.

Classroom discussion questions:

How is speedy delivery an OM issue?
Are your students willing to wait longer for an “anticipated” delivery time?

OM in the News: Chip Shortages are Still Hurting Auto Makers

Auto makers globally have been grappling with a shortage of semiconductors since late 2020, when a rebound in auto sales took companies by surprise after they had previously moved to reduce chip orders. Auto makers competed for limited supply against electronics companies like Apple and Dell that saw demand bolstered by stay-at-home consumers.

That demand has now eased, and smartphone sales are falling. The car market, meanwhile, has remained relatively strong and Toyota, the world’s biggest auto maker, says it still can’t get its hands on enough chips. Toyota is trimming this year’s production by 500,000 vehicles because of the shortage.

The situation reflects prolonged underinvestment in certain older types of chips that are particularly needed by car makers, writes The Wall Street Journal (Nov. 2, 2022). While slowing demand for smartphones and personal computers has eased shortages of memory and other chips and sparked fears of a glut, pockets of constrained supply remain. Analysts and chip executives say the supply-demand mismatch could drag on for years, that the auto industry isn’t yet near the end of its problems, and some might even worsen.

The problems particularly involve analog chips, which use older technology processing information with gradations, unlike digital chips that differentiate only between on and off signals. Other auto makers beside Toyota have also said they are grappling with a tight supply of legacy chips. Cars use hundreds of analog semiconductors for purposes such as moderating how much power is drawn from a battery, yet new investment has largely been funneled into developing more advanced chips.

Due to the nature of vehicles today, even if it’s just one type of semiconductor that’s in short supply, a car can’t be built. Toyota said it would temporarily give buyers of some models in Japan one smart key instead of two to help ration supplies.

Classroom discussion questions:

What options do auto industry operations managers have when faced with a chip shortage?
Why is there still a semiconductor shortage?

Guest Post: Fast Food Restaurants

Prof. Howard Weiss shares his insights with our readers monthly. We all spend time in fast food restaurants, so today’s topic should be of broad interest.

There are nearly 200,000 fast food restaurants, also known as quick serve restaurants (QSR), in the U.S. Obviously a key to these restaurants is short waits and fast service. Module D of your Heizer/Render/Munson textbook lists important measures for waiting line situations including:

 Average time that each customer spends in the queue
 Average queue length
 Average time that each customer spends in the system (waiting time plus service time)
 Average number of customers in the system

These measures have been increasing at many QSRs. However, the increase is not due to reduced productivity but rather to changes that have occurred in QSRs over the past several years. One change is that menus at fast food restaurants have expanded to include meals that take more time to prepare. The first fast food restaurant was White Castle, which opened in 1921 and had a very limited menu with only four items – a slider hamburger (which cost 5 cents), Coca Cola, coffee and apple pie. Today, QSRs have much more varied menus. Another reason that service times take longer is that patrons are becoming more sophisticated in placing custom orders, which take more time to prepare.

Recently, there has been an increase in the number of patrons who use the drive-thru lane. Much of this increase is due to COVID. All fast food restaurants reported an increase in 2021 of drive thru traffic with the percentage of patrons using drive-thrus being reported as 37% in one report and 52% in another. Because more customers are using drive-thrus the number of customers in line increases and therefore so does the waiting time.

There are steps fast food restaurants have taken to reduce the customer time in the system. Many have installed kiosks inside the restaurant so that ordering and payment is self-service. Just as ATMs increase the service capacity in a bank these kiosks increase the capacity at fast food restaurants. Another step is encouraging mobile ordering and payment so that the order will be ready when the customer arrives to pick it up. Some updated restaurant designs have increased the number of drive thru lanes.

Classroom discussion questions:
1. How have apps and kiosks changed how you receive service at QSRs?
2. What could be the downsides of QSRs using apps or kiosks?

OM in the News: Finding an Airbag in Russia

Western sanctions brought Russia’s car industry to a screeching halt earlier this year, writes The Wall Street Journal (Nov. 1, 2022). As it restarts, it is emerging smaller, technologically backward and more isolated—a foreshadowing of what could be in store for the rest of the embattled Russian economy.

Within weeks of Russia’s invasion of Ukraine, most Western car companies curtailed operations in the country. Sanctions cut off the supply of parts and, one after another, Russian car plants stopped production, with car production down 97% compared with a year ago. But as some Russian plants are now reopening, the restart features cars that were a far cry from prewar models, lacking air bags, anti-lock braking-system sensors or electronic stability-control technology, an industry standard.

Russia’s biggest carmaker can’t find airbags

“Such key factors of a modern car as an automatic transmission, four-wheel drive and a modern engine— but these tasks can’t be solved quickly and require serious funding,” said the CEO of AvtoVAZ, maker of the iconic Russian Lada auto brand. Lada workers wrote that their plant couldn’t restart due to the lack of components. At the moment, Russia’s best car is only 40% Russian. The rest used to be imported from abroad.

The auto industry is shaping up to be an early test case for how successfully Russian industry can recover from the greatest shock to the country’s economy since the dissolution of the USSR. Russian executives are scouring other countries for missing Western components or trying to produce them at home, a process that can take years to master. Meanwhile, they are producing cars partly based on designs decades old.

The war is undoing decades of Western investment and know-how, heralding a period of adjustment ahead across industries. “The impact on the industry will be indicative of what awaits other sectors of the Russian economy: less technologically advanced products, poorer quality and a limited variety of goods,” said an expert in London.

To resume production of cars with anti-lock brake systems next year and electronic stability control by 2024, AvtoVAZ will need to develop its own homegrown technological capability. The development of an automatic transmission will cost about 30 billion rubles, while creating an all-wheel drive system for cars will cost another 20 billion rubles. Locked out of their main suppliers, like Bosch in Europe, Lada is turning instead to Chinese suppliers, but Chinese versions aren’t expected until next year.

Classroom discussion questions:

In Chapter 2 (see page 33) we list 6 reasons businesses globalize. How does each of these apply to the Russian auto industry today?
What should Lada do at this point?